Oil Prices Move Higher on Signs of Moderating U.S. Output

U.S. crude futures climbed Monday, on track for their longest stretch of daily gains in nearly eight years amid indications that U.S. oil output may not be as resilient as many anticipated in the face of lower prices.

U.S. crude futures recently traded up 54 cents, or 1.17%, at $46.58 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 50 cents, or 1.03%, to $49.27 a barrel on ICE Futures Europe.

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This would be oil's eighth straight session of gains -- the longest streak for West Texas Intermediate, the U.S. benchmark, since a 10-day rally in late 2009 and early 2010. Brent hasn't experienced such a winning streak since 2012.

The move higher is a sharp turnaround from last month, when U.S. crude prices hit a 10-month low and Brent fell to its lowest level since November. Oil slid into bear market territory in June, down more than 20% from highs hit in February.

But fresh U.S. data late last week has raised some investors' hopes that the resurgence of U.S. crude production may not be unstoppable. Growth in U.S. output has been hampering efforts led by the Organization of the Petroleum Exporting Countries to reduce global oil inventories.

The U.S. Energy Information Administration said Friday that U.S. oil production fell in April, contrary to what many expected based on preliminary weekly figures. And oil-field services firm Baker Hughes Inc. reported a surprise drop in the number of oil rigs at work in the U.S.

Investors are wondering "did we fall too far, too fast? Is the market starting to react to the low-price environment?" said John Kilduff, founding partner at Again Capital. "We may be seeing these market forces act more quickly upon U.S. production."

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Last week's two-rig decline in a weekly count of U.S. rigs by Baker Hughes came after a record 23-straight weeks of increases. That helped support the argument that U.S. drillers are reacting to low prices and curtailing production.

"The decline signals that U.S. oil supply struggles to remain profitable between $40 and $45 a barrel," said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.

But some analysts say last week's data didn't necessarily mark a change in direction. The number of rigs working in the Permian Basin, a prolific shale formation in Texas, rose by one last week.

"The bulls will hype up the data for sure, but the market fundamental hasn't changed," said Gao Jian, an energy analyst at SCI International. The market "is still very oversupplied."

Analysts at JBC Energy said reduced output from oil fields undergoing maintenance in the Gulf of Mexico was responsible for the pullback in crude production in April.

"Therefore, this data still has very limited implications for U.S. production this year," they wrote in a note Monday.

And rising output from Nigeria and Libya is also undermining OPEC's efforts to work off the supply glut that has weighed on the oil market for three years, analysts at Commerzbank said.

"At current output levels, OPEC will not succeed in eliminating the inventory overhang completely by year's end," the analysts said. "The market ignored this, reacting instead to the slight decline in drilling activity in the U.S. reported by Baker Hughes.... All the same, it is still too early to see this as any kind of trend reversal."

Analysts and investors also said that light trading volumes ahead of the Fourth of July holiday in the U.S. could also be affecting prices.